"We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run." - Roy Amara, futurist and scientist.
Signs of overvaluation
Market prices for technology shares have skyrocketed recently. Historical data suggests that when an industry outperforms the market this aggressively over two years, the probability of a crash increases significantly. Current valuations are flashing warning signs similar to the internet boom of the late nineties.
High levels of ownership
Americans are chasing stocks with intensity. Household wealth in stocks is at a record high of 52 percent. This creates a scenario where retail traders and institutional investors alike are fully committed. Even skeptical investors feel forced to buy, creating a strange new market dynamic.
Pouring money into investment
Companies are spending massive amounts on data centers and power plants to support artificial intelligence. Tech investment has surpassed 6 percent of US GDP. While spending is exploding toward record levels, the actual returns on this capital remain uncertain for many businesses involved in the sector.
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The risks of overleverage
Major tech companies are not the cash machines they were previously. Debt is rising among these giants, and government deficits add another layer of risk. If bond investors start questioning national finances, it could push interest rates up and destabilize the broader economy.
When the bubble bursts
Despite these warning signs, the bubble continues to grow because financial conditions remain loose. History shows that bubbles usually pop due to rising interest rates or tightening money supplies. Until the flow of easy money dries up, the expansion will likely continue.
Summary
The article argues we are currently in an artificial intelligence bubble characterized by overvaluation, high ownership, excessive investment, and leverage. However, this bubble persists because loose financial conditions allow easy money to flow. A crash will likely only occur when liquidity dries up or interest rates rise significantly.
Food for thought
If corporations replace human labor to justify their massive AI investments, will the resulting social disruption trigger a political backlash that limits the technology's adoption?
AI concept to learn: Hyperscalers
These are massive cloud computing providers like Amazon AWS or Microsoft Azure that dominate the global data center market. They provide the immense computing power and storage infrastructure necessary to train and run large artificial intelligence models for businesses and consumers.
[The Billion Hopes Research Team shares the latest AI updates for learning and awareness. Various sources are used. All copyrights acknowledged. This is not a professional, financial, personal or medical advice. Please consult domain experts before making decisions. Feedback welcome!]
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